STANDARD COSTING AS AN ESSENTIAL TOOLS FOR MANUFACTURING COMPANIES A STUDY OF INNOSON COMPANY ENUGU

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Knowing that a standard is an establish basis or measure against which actual result of performance is bench marked. Standard cost is a predetermined or established cost, or target or goal which the management of a firm or industry aims at achieving given a conducive operating condition with a view of attaining maximum efficiency in its production. I is a pre-determined or forecast estimates of cost to manufacture a single unit or a number of cost to manufacture a single unit or a number of units of product during a specific immediate future period (Keller et al 1966: 171) Therefore, standard costing is a costing technique which compares the standard cost of a units of product with the actual cost to determine the efficiency of operations with the ultimate intention of carrying out any remedial action whenever necessary. Based on the fact that they are pre-determined units cost estimates deviation are bound to occur and these are pin pointed in that they represents measures of performance. These deviations are termed variance, and are isolated for an in-depth analysis to reflect in the variance aids to the initiation of corrective and control action, so as to direct the operational activities of the firm to conform with the standard cost as determined prior to those activities. One basic principle is that standard cost (whatever type) is used as a control of production cost, employees excesses and thus adds to the performance appraisal bearing in mind the over all objective of the firm or industry. As opined by Ama (2001: 7) the task of control accounting is to produce data at regular interval in a standard form so that the firms actual performance can be compared with plans and budgets and differences analyzed by causes. By implication the progress of every manufacturing firm cannot be achieved on a total neglect of this cost control technique.

1.2 STATEMENT OF PROBLEM

The problem of control as a function of the business manager and evaluation of the performance of the entire organization has become a hydra – leaded outlook. More so, the economic hardship characterized by high rate of inflation, fluctuation in the prices of goods, high cost of production among other task has led many companies to find ways of their production facilities in operation till a time when the economy is expected to improve. Such companies adopt cost control over production cost as to reduce and eliminate wastages. Standard Costing is one of the cost control techniques which has been developed for years. And its widely application by many companies has proved it to be eective in supplying use information for cost control. It is also worthy to note that standard costing in itself cannot control costs but can only be useful when the information supplied by this is applied to cost. With standard costing, technique efficiency can be determined through comparism of the actual incurred cost with the existing standard but for the fact that production input are procured in an open market, it is affected by the inflation rate. This become a problem to the cost accountant in supplying accurate cost information. Therefore a cost information supplied today may become outdated in the next day.